Why I think 5% yields from FTSE 100 stocks Shell and St James’s Place could help to you to retire early

Roland Head explains why he’d pick FTSE 100 (INDEXFTSE:UKX) firms Royal Dutch Shell plc (LON:RDSB) and St James’s Place plc (LON:STJ) for reliable dividend incomes.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Searching for income stocks to help fund your retirement isn’t always easy. So many companies seem to come unstuck at some point, leaving shareholders out of pocket, and facing a brutal pay cut.

Of course, dividend cuts will always happen. But with careful stock selection, I think investors can minimise their chances of income losses. Today, I’m going to look at two stocks which I think could be lifetime income buys.

The dividend hasn’t been cut since WWII

Oil and gas giant Royal Dutch Shell (LSE: RDSB) needs no introduction. But you may not realise that this FTSE 100 firm hasn’t cut its dividend since the Second World War. That’s an outstanding record that very few companies — or investment funds — can match.

Although I’m concerned about climate change, I don’t expect oil and gas consumption to collapse in the near future. What’s more, even if there’s a long-term decline, I believe Shell would be able to adjust its business to focus on cash generation and perhaps renewables.

The group’s large assets tend to have high development costs, but lower operating costs. I would expect that by cutting investment in new projects, management could run the business for cash for many years, funding generous shareholder returns.

The right time to buy?

Shell’s share price is no longer trading at the bargain levels seen during the oil market crash in 2016. But I don’t think the shares are expensive.

Analysts expect the group to report earnings of $2.72 per share for 2018, climbing by 19% to $3.23 per share in 2019. These projections put the stock on a 2018 forecast P/E of 12, falling to a P/E of 10 for 2019.

The stock offers a dividend yield of 5.7%. Earnings cover for the payout is improving, and a dividend hike may soon be possible. I rate Shell as an income buy.

This firm could be dividend royalty

My second pick today also has a distinguished dividend history. FTSE 100 wealth management group St James’s Place (LSE: STJ) has not cut its payout since 1998.

This firm uses a network of self-employed financial advisers to generate business for its retirement savings products.

In a trading statement today, St James’s said that net inflows of £7.7bn during first nine months of 2018 had lifted group funds under management to a record £100bn.

Many of the firm’s rivals have seen outflows in recent months, so this strong performance is particularly notable. According to chief executive Andrew Croft, one reason for the firm’s success is “strong retention” — customers tend to stay with the firm once they’ve signed up.

This may be one benefit of the group’s sales model. I suspect, however, online customers are less loyal, but those who deal directly with a financial adviser may feel less inclined to move.

The right time to buy?

The firm’s business model means that cash generation tends to be quite strong, while costs are limited.

The group’s underlying cash result, a post-tax measure of money available for dividends, was £281m last year. This provided comfortable cover for the dividend, which totalled about £227m.

St James’s Place currently offers a forecast dividend yield of 5%. Given the group’s strong track record, I’d be a buyer at this level.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 51% in 2024, this FTSE 250 stock is flying!

This writer takes a look at one high-flying FTSE 250 share that still looks good value despite surging to an…

Read more »

Investing For Beginners

Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he's avoiding and what he's thinking of buying to try and protect his portfolio from…

Read more »

Bearded man writing on notepad in front of computer
US Stock

Call me crazy, but here’s why I’m eyeing up the CrowdStrike share price

Jon Smith notes the carnage caused by Friday's global outage, but flags up why he's thinks the CrowdStrike share price…

Read more »

Investing Articles

What do Hargreaves Lansdown results mean for the share price?

The Hargreaves Lansdown share price has surged in recent months on takeover expectations, but what will the recent results mean…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Newly minted S&P 500 stock CrowdStrike just crashed! Here’s why

Shares of S&P 500 firm CrowdStrike collapse as the company lies at the centre of a global IT outage. What…

Read more »

artificial intelligence investing algorithms
Investing Articles

Is Nvidia heading for the mother of all tech stock crashes?

Nvidia stock has soared, and the company briefly became the most valuable on the planet. But not everyone’s an AI…

Read more »

Dividend Shares

The BP share price is down 15% in 3 months. Time to buy?

In the space of just a few months, the BP share price has fallen by a double-digit percentage. Is this…

Read more »

Investing Articles

A 5.4% dividend bargain I’ll buy over Lloyds shares

Harvey Jones loves his Lloyds shares but now he's found a high-yielding FTSE 250 stock that may offer even more…

Read more »